In the third quarter of 2022, European and Asian spot gas prices reached new record highs but remained highly volatile. Driven by the Russian gas crisis and threats of pipeline supply cut, European gas prices peaked at over €300/MWh at end-August, contributing strongly to the European inflation. However, three bearish factors have moderated European prices over the last few weeks: the good replenishment of stocks, the very strong growth in LNG imports at the expense of China and the sharp reduction in gas consumption (plants’ closures and industrial demand destruction, energy substitution and energy savings) in response to the surge in gas prices. The massive inflow of LNG and the destruction of demand in Europe have kept storage levels high and these two factors will be crucial to get through the next winter without a deficit.
In the second quarter of 2022, European and Asian spot gas prices were on average lower than the levels of the first quarter but experienced strong trend variations. After an exceptional price surge in the days following the invasion of Ukraine in early March, prices fell back to levels of around $20/MBtu to $30/MBtu until mid-June. In Europe, the mild temperatures, the sharp fall in gas consumption, the growth in LNG imports and the high inventory filling rates had a moderating effect on prices. But since mid-June, Russian gas supply cuts through the Nord Stream pipeline and the shutdown of the Freeport LNG plant in the United States have caused spot prices to soar again. Europe is entering the third quarter on high alert, with the risk of prolonged disruptions in Russian gas supplies, prompting emergency measures.
In the first quarter of 2022, European and Asian gas prices remained at stratospheric levels in the context of the energy and geopolitical crisis. Market conditions got relatively calmer in January and February as market fundamentals improved, especially due to warming weather. But since the end of February, the Russia-Ukraine conflict and its related concerns for the security of European energy supply triggered a stratospheric rise of European gas prices, which reached new record highs at the beginning of March. Since then, both European and Asian prices have slipped back but have remained extremely volatile in response to the evolution of the geopolitical context. European prices have most of the time retained a premium over Asia, attracting uncommitted cargoes from the Atlantic Basin, especially from the United States. Global LNG supply increased on the back of growing US LNG exports to Europe, while Asian LNG demand weakened amid a warming weather and a Covid revovery in China.